Julio Angulo was evicted from his Virginia home last December. (American News Project)

It was last December when Julio Angulo ignored the bitter cold and sat on a rusted patio chair in the front yard of his foreclosed home in suburban Manassas, Va. He sighed, resting his hand on his knee. He stared despondently at the sky. His lender had foreclosed on his house in July. He had just been evicted.

[Economy1]Angulo, then 55 years old, had nowhere to go. His wife and two children already had returned to El Salvador. He had refused during the summer to accept a cash-for-keys transaction, in which he could turn the house over to the lender in exchange for a cash payment. Instead, he remained, alone, in the three bedroom townhouse, in a modest working-class neighborhood called Georgetown South, until a Prince William County Sheriff’s Deputy knocked on the door on Dec. 1, 2008 for the foreclosure eviction.

A house painter, Angulo couldn’t afford the market rents of $1,500 a month for apartments elsewhere in the neighborhood. Most of Prince William County’s shelters also were full that day.

A year later, Angulo is gone. A legal resident of the United States, he joined his family in his native El Salvador, to let a knee injury heal, and to recover from his lost dream of owning a home. With nowhere to go immediately after the eviction, he luckily ran into a neighbor that night who offered to rent him a room for two weeks. He went to a public health clinic, to see a doctor about the arthritis in his injured knee. Then he left for El Salvador.

The house he paid $280,000 for in July of 2005 sold for $69,900 on March 16, 2009, according to local real estate agent Keith Elliott Jr. Real estate investors bought it.

And a year later, the hopes of those who thought the government could come up with a plan to stop foreclosures and help keep people like Angulo in their houses seem in tatters as well.  The Obama administration’s signature effort remains its $75 billion Making Home Affordable program, which was set up to aid as many as 4 million homeowners. But Making Home Affordable has in most ways been a crushing disappointment, housing advocates say.

At the beginning of this year lenders on their own were doing far more permanent loan modifications than the government has been able to accomplish since rolling out its program in April, noted Diane Thompson, an attorney with the National Consumer Law Center. Private lenders were completing 120,000 permanent loan modifications per month during the first quarter of this year. Under the Obama administration’s initiative, some 650,000 homeowners have entered into trial loan modifications, but only about 10,000 permanent loan modifications had been completed by the end of October, a Congressional oversight panel reported on Wednesday. Treasury Department figures released Thursday showed that only 31,382 permanent loan modifications had been completed under the government program as of Nov. 30.

Making Home Affordable’s loan modification effort is known as HAMP, or the Home Affordable Modification Program. The small number of permanent loan modifications so far is due in part to a new program getting established, and to the fact that borrowers in the government program have to complete three-month temporary trial loan modifications first, in order to qualify for permanent ones. Getting the permanent trial modification isn’t automatic — trial program borrowers must submit paperwork documenting their incomes to convert to permanent loan modifications, and they must make three months of payments under their trial agreements.

Treasury expects some 375,000 trial modifications to be finished by the end of this year, but it’s not clear how many will become permanent. Updated numbers are expected this week. But none of this fully explains the glaring lack of progress so far, Thompson said.

“We’re more than nine months into the program, and trial modifications account for only about 11 percent of all the seriously delinquent loans, and permanent modifications aren’t even on the radar screen,” Thompson said. “The HAMP servicer participation agreements do not provide for any penalties, other than termination from the program, for the failure to make modifications.  Until those agreements are revised, the administration has little recourse other than public shame to compel servicers to make loan modifications. Meanwhile, the number of homes seriously delinquent and in foreclosure continues to rise every quarter.”

This is hardly what Thompson expected, just a year ago.

“It’s been very distressing,” she said.

In testimony submitted to the House Financial Services Committee on Tuesday, officials from JP Morgan Chase reported that of every 100 homeowners who sought to have their loans reworked under the government’s program, just 15 have or will end up with, a permanent loan modification.

Thompson and others who follow loan modifications said they were aware from the beginning that the government program couldn’t prevent all foreclosures, especially as job losses mounted and even prime borrowers fell behind on their payments. Experts also knew there would be some slowdown under the administration’s new program, as servicers worked to convert temporary loan modifications into permanent ones.

Servicers and borrowers are pointing the finger at each other over the lack of more permanent loan modifications. Servicers contend borrowers aren’t coming up with the necessary paperwork, such as documenting their incomes, that is required for permanent loan modifications. But housing counselors say just the opposite — that borrowers supply servicers with pay stubs and other paperwork, only to have their servicers lose them, or sit on them so long they aren’t current.

Thompson said there are even bigger problems with the program that leave her feeling very differently about the effort today, compared to her optimism when it was first announced.

“I don’t yet see any of the work on HAMP by the administration addressing the core problems in the program–a lack of accountability and transparency–so I am not optimistic, although I do believe that some of the incremental changes to the program are helpful and may help tens of thousands of people,” she said. “The problem is that we need to help millions, not tens of thousands.”

Alan White, a Valparaiso University law professor who studies loan modifications, was even more blunt:

“If we don’t see more permanent mods soon,” he said, “it will look like the HAMP program is a failure. We’ve seen a net reduction in permanent loan modifications. That’s not good.”

The failure to get more permanent loan modifications done “should be considered a breach of contract” by servicers and lenders that have accepted taxpayer bailout money and are eligible for financial incentives from the government for reworking loans, White said.

He and others never expected things to end up like this. In November 2008, mortgage giants Fannie Mae and Freddie Mac announced a foreclosure moratorium for the holidays, beginning in Thanksgiving, to allow the government to work out the details of streamlined loan modification efforts. Hopes were high that many borrowers would stay in their homes.

In Angulo’s case, the help was too late. He was evicted regardless, because the policy applied only to new foreclosures, not those already in the pipeline.
Fannie Mae announced last month a new policy to allow qualified owners facing foreclosure to rent back their homes for as long as a year. But Angulo most likely would not have qualified for that help, either, had it been available a year ago, since he couldn’t afford market rents in the area, a requirement of the program.

Angulo had covered his mortgage by renting out some of the bedrooms. In the spring of 2008, his renters left and the monthly payment on his adjustable rate mortgage also jumped from $1,400 to $2,600. As a house painter, he earned $500 a week.

Angulo said at the time that he tried to contact his lender, Aurora Loan Services, a subsidiary of Lehman Bros. that specialized in Alt-A and interest-only loans. But the servicer wouldn’t help him, he said.

Since his eviction, his old neighborhood isn’t the only location were housing values have fallen. In November, Zillow, an online real estate service, reported that year over year housing values nationwide had declined for the 11th consecutive quarter.

In Georgetown South, since last December, the highest priced home that has been sold went for $120,000, and it most likely resulted from an investor flip, Elliott said. In Prince William County overall, the first-time homebuyer tax credit helped boost sales of bank-owned foreclosed properties – but that doesn’t mean the local housing market has recovered, he said.

“Banks are probably planning on trickling out these additional foreclosures slowly while the market continues to improve,” he said. “How big is the shadow market? Honestly, I think it’s anybody’s guess. The banks could be sitting on a whole bunch just waiting to trickle them out a few at a time.”

As neighborhoods like Georgetown South continue to absorb the effects of a collapsed housing market, NCLC’s Thompson noted that growing foreclosures are spreading damage throughout the economy, hurting neighborhood property values, and cutting into state and local tax revenues.

That’s why Julio Angulo’s story is much more than just the eviction of another former homeowner on a cold December day, a year ago.

“This isn’t just about homeowners who need help,” Thompson said. “Unless officials take forceful action on foreclosures, things will only get worse. I never thought, at this point, that foreclosures still would not be effectively addressed by the administration. If we don’t get foreclosures under control, and soon, they’re going to drag down the whole economy.”

Angulo, for his part, promised to call if he ever could make his way back to Virginia, to try again to find work, and to buy another home.

He hasn’t been heard from since he left.

This article was to include new Treasury Department loan modification figures released Thursday.

Read Mary Kane’s December 2008 article about Julio Angulo’s eviction here.

But as Bailoutsleuth.com explains, it’s a little hard to judge just how transparent the program actually will be, given the information released so far.

The Treasury Dept. hired two accounting firms — PricewaterhouseCoopers and Ernst&Young — to oversee the program. But good luck figuring out their contracts. Copies released by Treasury have key details blacked out or redacted entirely, including information on the bids for the contracts and the partners involved, Bailoutsleuth says.

You can see the contracts for yourself here.

And there are more concerns, especially over conflicts of interest, according to Bailoutsleuth:

Ernst & Young was the auditor for Lehman Brothers Holdings Inc., which filed for bankruptcy on Sept. 15 after potential buyers walked away and federal officials declined to rescue the firm. Certain Lehman executives are the subject of at least three grand-jury investigations.

According to news reports, Ernst & Young also has been subpoenaed as part of the probe.

After Lehman’s collapse, Hong Kong’s government hired Ernst & Young to assess the residual value of certain securities that had been guaranteed by Lehman and sold by Hong Kong banks.

PricewaterhouseCoopers became the administrator for Lehman Brothers International (Europe), the European branch of the investment company. It has been winding down that branch’s operations and seeking buyers for its businesses and assets.

Both firms also worked for American International Group Inc., the big insurer that has been propped up by the Federal Reserve through more than $120 billion in funding, which essentially makes the government the company’s biggest shareholder.

Bush went first, explaining to the American people that Washington will invest $250 billion in the nation’s banks. The Treasury Dept. will take equity stakes in banks, which have been pressed into accepting partial nationalization in return for an investment of taxpayer money. The FDIC is set to talk about launching an insurance fund to guarantee new issues of bank debt.

Bush defended the move, saying it’s not an abandonment of the free market.

Angry Bear puts it this way:

I’ve always wanted to have my very own bank…

The Big Picture has a rundown of which banks will get the money – and how much they’ll get. And a little commentary on the fact that, as unthinkable as partially nationalizing banks may seem, it should have happened far sooner:

Yet, according to yesterday’s Wall Street Journal, Fuld gave investors a confident assessment about Lehman’s financial health during a Sept. 10 conference call — five days before the investment bank sought Chapter 11 bankruptcy protection. That led Rep. Paul Sarbanes (D-Md.) to remark at yesterday’s oversight hearing that Fuld seems to have been either naive or deceptive.

Lehman documents handed over to the committee suggest a little of both.

One undated internal memorandum, written some time in the past six months, amounts to an eight-page, bullet-pointed pep talk describing how Lehman can regain its discipline and focus.

Titled “What Happened & Why,” the memo asks such questions as “Why did we allow ourselves to be exposed?” and is the “business model broken?”

It does provide answers similar to what Fuld said publicly before Lehman filed for bankruptcy protection: that the business model was fine and that crises are a “feature of financial markets.”

Through “intellectual capital” and “drive,” the memo said, Lehman will emerge better than ever through this “Darwinian process.”

The Darwinian process, of course, devoured Lehman. But judging from this memo, it looks as if Fuld was able to convince himself that the investment bank could recover. And, as he testified yesterday, he never sold his company stock.

The consequence of his misplaced confidence may have been the next phase of the now emerging global financial crisis.

Fuld has deflected questions on whether he’s unfair, unethical and has committed fraud. He has spoken deliberately, demonstrated little passion and largely stonewalled lawmaker’s questions as if he were a member of the Bush administration’s Justice Dept. Until Peter Welch (D-Vt.) asked Fuld why the government bailed out AIG but didn’t bail out Lehman.

Fuld became animated: “I do not know why we were the only one.”

He discussed how the Treasury Dept. bailed out fellow investment bank Bear Stearns in March, and Bank of America bought Merrill Lynch the week Lehman declared bankruptcy.

He also encouraged questions from Welch and Rep. Dennis Kucinich (D-Ohio) that AIG was bailed out because Goldman Sachs, where Paulson was formerly CEO, had a reported $20-billion tie to the insurance giant.

With the hearing winding down, Fuld kept saying, “I wake up every single night thinking what I could have done differently. This is a pain that will stay with me the rest of my life.”

On whether the Treasury Dept. should have bailed out Lehman, the committee actually seems in agreement with Fuld.

Henry Waxman (D-Calif.) said in his opening statement: “Many experts think Lehman’s fall triggered the credit freeze that is choking the economy and made the $700 billion rescue necessary.”

The committee holds a hearing tomorrow on AIG.  Will the committee push the line of questioning encouraged by Fuld– that AIG was bailed out, and Lehman Bros. wasn’t, because that was the scenario most beneficial to Goldman Sachs, a rival investment bank to Lehman?

No one is suggesting that Paulson was merely making decisions based on Goldman Sach’s best interests. But the oversight committee’s work may discover that it was at least a factor.

The committee has produced internal Lehman Bros. documents that show Lehman CEO Richard Fuld resisted claims to limit his compensation and rejected any responsibility for the investment bank’s bankruptcy. Fuld will testify in an hour, and it could get ugly. Rep. Elijah Cumming (D-Md.) wondered how “he sleeps at night”.

But for now, House Republicans are taking turns blasting Rep. Henry Waxman, (D-Calif.) the committee chairman, for not scheduling a hearing on Fannie Mae and Freddie Mac. The committee Republicans contend that Democrats had blind faith in Fannie’s and Freddie’s plan to help low- and middle-income homeowners and ignored the government sponsored enterprises’ risky purchases of subprime mortgages.

Rep. Tom Davis (R-Va.) and Rep. John Mica (R-Fl.) keep circling back to how the Clinton administration built up Fannie and Freddie. The shady accounting practices of former Fannie CEO Franklin Raines, a Clinton appointee, are also fair game.

The Republican seem off the mark. They keep hammering Raines, who resigned in 2004. But the riskiest purchases by Fannie and Freddie happened in 2005-2007.

Democratic and Republican committee members might soon unite in bashing Wall Street’s current symbol of greed, Fuld. But they look far apart in agreeing on how the government helped cause the crisis.

Investment editor John Authers traces many of today’s problems back to the rescue of Long Term Capital Management in 1998 — the weekend when the New York Federal Reserve and the titans of Wall Street got together to save the troubled hedge fund. From that plan came the start of cheaper money from the Fed to keep the markets moving, a trend that continued for a decade.

But the rescue also created the moral hazard problem – the belief that it was fine to take on greater risks than normal, because the government would be there to step in as a last resort.

As Authers explains, shares of the now-failed Lehman Bros. bank rose steadily from 1998, until its recent crisis. Lehman wasn’t alone, as Wall Street engaged in riskier investments, with higher returns. There always was the implicit belief — based on the Long Term Capital Management experience — that a bailout would be a possibility if things went wrong. That belief encouraged firms to take on risks they might otherwise have avoided.

Now, he says, with the government refusing to bail out Lehman, the markets are tanking and the future of other firms is shaky. No one knows what will happen.

But one thing is clear, Authers says, based on the Lehman bankruptcy and the government’s decision to draw a line in the sand — “The decade of moral hazard is over.”

Before an audience of about 3,000, McCain repeated his assertion that “the fundamentals of the of our economy are strong,” adding, “these are very, very difficult times.” Here’s the video:

The current banking crisis comes in the wake of the federal “don’t call them  bailouts” bailouts of mortgage giants Fannie Mae and Freddie Mac. The Obama campaign wasted no time in jumping on McCain’s comments. Obama spokesman Bill Burton released the following statement:

“Today of all days, John McCain’s stubborn insistence that the ‘fundamentals of the economy are strong’ shows that he is disturbingly out of touch with what’s going in the lives of ordinary Americans. Even as his own ads try to convince him that the economy is in crisis, apparently his 26 years in Washington have left him incapable of understanding that the policies he supports have created an historic economic crisis,” said Obama campaign spokesman Bill Burton.

At a rally in Michigan, Sen. Joe Biden took the opportunity to hammer McCain.

“John McCain has confessed, and I quote – I want to make sure I get it right – he said, ‘It’s easy for me to be in Washington and frankly be somewhat divorced from the day-to-day challenges people have.’ Well, he’s right. He’s right. If all you do is walk the halls of power, all you’ll hear is the wants of the powerful.

Ladies and gentleman, I believe that’s why John McCain could say with a straight face as recently as this morning, and this is a quote, ‘the fundamentals of the economy are strong.’ That’s what John said. He says that we’ve made great progress economically, in the Bush years. Ladies and gentlemen, I could walk from here to Lansing, and I wouldn’t run into a single person who thought our economy was doing well, unless I ran into John McCain.”

With the nation’s financial markets in shambles; the national unemployment rate at a five-year high; the foreclosure rate continuing to increase, and gas prices expected to rise again in the aftermath of Hurricane Ike, one might wonder, what exactly these fundamentals are that McCain refers to? McCain offered some clarification at a town hall meeting in Orlando this afternoon:

“My opponents may disagree, but those fundamentals — the American worker, the innovation, the entrepreneurship, small business — those are the fundamentals of America, and I think they’re strong.”

McCain also said working Americans are not to blame for the crisis, but the fundamentals are “being threatened by greed and corruption that some are engaged in on Wall Street…because some on Wall Street have treated it like a casino.”

It nice for the McCain campaign to let the American worker off the hook. But nobody’s blaming working-class America for Wall Street’s problems, especially not the Obama campaign.

Neither campaign has yet released any specifics as to how they would address the problem, other than vague references to change and reform. Still, it is nice to see an actual issue driving the news cycle, for a change.

Banks can borrow from the fund, using the kind of collateral the Fed doesn’t usually accept. The move is aimed at providing some liquidity and preventing a total credit squeeze as Wall Street absorbs the financial shocks of the weekend’s events.

At Portfolio, Felix Salmon translates this and explains what the move really means:

When Wall Street’s alpha males stop competing and start cooperating like this, you know you’re living in historic times.

As The Washington Post explained, two of the world’s biggest investment banks are basically about to disappear, with Lehman Bros. filing for bankruptcy and Merrill Lynch being bought by Bank of America. Once the shock of all this settles today — and the markets begin to react — questions will begin anew about whether the Federal Reserve should have stepped in here, the way it did to rescue Bear Stearns in March.

But if today’s news isn’t unsettling enough, consider this possibility. Maybe the Fed didn’t step in because it couldn’t. Yes, the Fed decided over the weekend to loosen its lending practices a bit, to keep cash flowing. But that’s all.

But, maybe the Fed is, as they say, out of powder. Maybe it decided the government no longer has endless pockets to rescue failing banks — even those as big and venerable as Lehman Bros. and Merrill Lynch. Maybe there’s no backstop anymore.

Whatever the reason for the Fed’s decision, it’s clear Wall Street is on its own now. Keep your eye on the markets today; it should be a bumpy ride.